Early bird catches the worm!

When a company or an individual is experiencing financial difficulties, it is vitally important that early advice is sought from trusted advisors which, generally,  improves the potential outcome for all concerned.  At PBC Business Recovery & Insolvency this is something we advocate all the time and below is a recent testimonial from a director where he has taken advice sooner rather than later….

“I have been meaning to drop you a line since we met up to say many thanks for your time and sage advice regarding my options to keep cashflow running and stave off the need to investigate any other more drastic solutions at this stage. I have managed to put a payment plan in place for the VAT as suggested, alongside the corporation tax plan already in place, so this has enabled me to cover the redundancy costs for a couple of positions, with the ongoing savings that this will provide hopefully being sufficient to see us through to a more buoyant trading environment. As you said when we met, hopefully this will mean we don’t need to meet again any time soon in a professional capacity (in the nicest possible way!) but I will certainly let you know how we get on at the other side of all this in any event. Have a good weekend and thanks once again”

If you need any advice or assistance with any financial concerns, PBC are here to help and the sooner advice is sought the more options that are available, which can include no formal instruction to us. Please contact us on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

What is a prohibited name?

“My company is failing but there remains a viable core business that I want to save.”  At PBC we are hearing this scenario on an increasingly regular basis

There are recovery options available to companies that are suffering from cashflow difficulties, such as a company voluntary arrangement.  Unfortunately, circumstances may dictate the only viable option is to acquire the business from the company and start afresh.  The most regularly used procedures for this are a pre-pack administration or simply acquiring the business from the appointed liquidator.  However, the overall circumstances dictate which is the more appropriate option in the circumstances.

A difficulty with looking to re-start trading with a new company can be the name and/or brand.  Section 216 Insolvency Act 1986 (“The Act”) states that the name of a company that is in an insolvent liquidation becomes a prohibited name.  Directors have suggested looking at a pre-pack administration avoids this restriction.  However, it is often the case an administration will exit into liquidation and accordingly, trigger Section 216 of the Act.

The provision relates to a name that is so similar that it may cause confusion to the public.  It also includes a trading name or a simple use of initials.  In the case of Re: Johnsons Electrical & Mechanical Services Limited (in liquidation) the court determined naming the acquiring company, “JEM (Group) Limited” was the re-use of a prohibited name, despite the director claiming “JEM” was part of his name – Jeremy.

There are exceptional rules to argue against the allegations of a breach to this provision and a director should always seek independent legal advice on the re-use of a prohibited name.  More importantly, directors should ensure the steps required are strictly followed because the courts adopt a no tolerance stance towards the failure to follow correct procedures.  As a warning, the penalty for getting this wrong has been demonstrated in the Johnson case where the director was held personally liable for the debts owed to the (2) claimant companies, resulting in his personal bankruptcy.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Former liquidator imprisoned

Many readers may take some pleasure at reading the headline, which relates to an Australian Insolvency Practitioner (“IP”) who was found guilty of extracting over AUS$2.5 million from insolvency estates.

Whilst that IP will have plenty of time to reflect on his wrongdoing, the estates should not lose out as a regulated IP must take out a specific insurance bond, to the value of the anticipated assets in that estate, on every appointment.  This serves to protect the creditors from any financial wrongdoing by the IP or their staff.

Unfortunately, there are unregulated advisors who prey on the vulnerable making big assurances such “Use us and we help all of your financial worries go away”.  They will offer you something like:

  • You can resign as a director.
  • We shall acquire the shares.
  • Everything will be sorted, meaning you can get on with your life.

PBC have previously advised directors of the dangers of trying to “Cut corners” and use an unregulated advisor, yet those warnings do occasionally go unheeded at considerable personal risk to the directors.

On 29 July 2024 Save Consultants Limited was subject to a public interest winding up order.  This company worked alongside Davis Acquisitions Limited who were appointed as director of 78 companies.  The Insolvency Service stated Davis Acquisitions was used as the vehicle to, “Avoid formal insolvency procedures, asset recovery and director conduct scrutiny.”

Unlike the situation with the wayward Australian IP, these companies are not subject to the specific insurance requirements and, as such, the creditors will suffer greater loss.  However, the likely issue surrounding those 78 companies will be a formal winding up of each company, followed by commencement of legal proceedings for a breach of duties, which could lead to personal liability and even director disqualification for those directors who believed using an unregulated advisor was the “Easy” way to out.

Financial difficulties can often be an unpleasant and stressful experience for anyone, so it can be attractive to hear someone promising to take all of your problems away.  However, as the saying goes, “If it sounds too good to be true then it often is,” could not be closer to the truth when discussing the highly specialised area of insolvency, where, to avoid any repercussions, demands appropriate and regulated specialist advice.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Personal Guarantees – Did you take advice before signing?

Being a director of a limited company means a director is not liable for the company debt.  Well, that is the theory anyway.

All too often at PBC we advise directors who have given personal guarantees for company liabilities (“PG”).  Sometimes they do not realise what they have done until after we have suggested they check out the documentation, while on other occasions a PG has been given when their company was under duress and the directors were desperate for financial support.

Having said this, the key question is whether that PG is enforceable or even a PG at all; just signing a credit agreement on behalf of your company does not mean you have given a PG.

The best advice that can be given is, when confronted by a request for a PG, a director takes independent legal advice beforehand.  It maybe the directors have no choice but to give a PG, but there are areas of mitigation, such as a cap on liability, for example.

The presence of a PG may, at times, influence directors to act contrary to their duty owed to company creditors when insolvency is a significant possibility, as the fear of the PG being called against them is a genuine concern.

At PBC we see this conflict between PG exposure and directors duties regularly and advise directors on the correct way forward, including where possible facilitating a means of settling the PG exposure if, indeed, the worst were to happen.  

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Insolvency as a job – It can be a thankless task.

Everyone wants a pop at someone and that someone ends up being us at times. 

  • Landlords losing a tenant or with rent arrears
  • Creditors being owed money
  • Director/shareholder disputes
  • Employees losing their jobs

We’ve had creditors turn up with big burly men and threatening behaviour, verbal and written insults. Every man and his dog thinks that because a company has gone bust there must have been some wrong-doing which we absolutely must investigate. Albeit that is very rarely the case, in the few instances we do have to take legal action and lift the corporate veil, we then hear ‘you didn’t tell us that’ or something else, quite often insulting the person having given the advice. 

If we know about it, we will tell you if it’s right or wrong.  Even if there is an action, we report it to the Insolvency Service, but it rarely results in director disqualification.  We can only pursue someone financially if they have anything to pursue and if it’s cost effective.  However, if we don’t do so, that’s our fault too, even though we are an independent 3rd party who was not involved whatsoever in running that business.   Often, we are accused of being in cahoots with the directors, just because they came to us for advice and we are helping them with their statutory duties, along with relieving them of some pressure at the same time. 

We work in a very complex profession whereby the ‘entity’ we are acting for changes throughout, initially advising directors or individuals of their responsibilities and guiding them through the process before being formally appointed and then having a statutory duty to act for the creditors.  Despite all of these,  we remain in insolvency because we believe there is a value in what we do. 

The insolvency process is beneficial although it’s a hard sell at a networking event, we can’t often offer much in return but may help you keep a client, ensure employees get paid, release directors from a lease enabling the premises be let to a more reliable business, put some money back into the public purse, return funds to unsecured creditors in quite a few occasions, relieve some pressure from business owners that simply need guidance so they don’t fall fowl and become one of those few above that do become personally liable. 

We often provide enough support that our formal services are not needed.

Who knows – you may actually see the positives in what we can offer….. 

By Claire Goodacre 

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Settling a Director Loan Account – A potential tax exposure?

Settling a Director Loan Account - Potential Tax Exposure?

It has become an increasing situation to discover adverse director loan accounts (”DLA”) showing on the balance sheet of companies that are in financial difficulties.  All too often a director is left with a financial burden that requires settlement, whether that is in part or in full, paid by way of lump sum or over a period of time. 

Where it is part settlement, is the unpaid balance of that DLA deemed to have been written off or are you simply released from that liability?

That was the question the tribunal judge had to consider in the First Tier Tribunal of The Commissioners for his Majesty’s Revenue and Customs versus Gary Quillan.  The issue arose after Mr Quillan paid £57,000 to the liquidator of his company, leaving an unpaid balance of £382,456.  HMRC decided to levy a tax charge against Mr Quillan under section 415 Income Tax (Trading and Other Income) Act 2005 that permits the assessment against any adverse DLA which is either written off or released (from being pursued).  HMRC lost the appeal as the tribunal determined the DLA balance had not been written off nor released, merely left unpaid and available to pursue should the financial circumstances of Mr Quillan significantly improve at some later time in life, subject to the provisions of the Limitations Act.

Where an adverse DLA is concerned, if a director is incapable of repaying in full, paying a settlement in full and final satisfaction, it may expose that director to a section 415 tax assessment.  But, in leaving the matter “Open” the risk carried is they could be subsequently pursued for the unpaid element at some later stage, presumably within the 6 years limitation period?

When faced with a company that has an adverse DLA, PBC look to work with the director to review the construction of the DLA to ensure the balance is a genuine personal liability.  All too often we find the DLA includes genuine business expenses and often makes no allowance for setting off monies owed to that director.  Indeed, in a recent instruction, PBC were able to successfully defeat a DLA recovery claim by litigation funders (acting for a liquidator) by exercising a similar review.  Unlike that recent instruction, while a review may not extinguish the balance owed, it can often assist the director in reaching an agreement for repayment and in a manner that could minimise the threat of a tax assessment landing on the doorstep at a later date.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Have you given a personal guarantee?

Have you given a personal guarantee

Perhaps an obvious question but, how many times do directors respond with something like, “I am not sure,” or “No, I do not think so.”  Alternatively, a director will say they have given a personal guarantee, only to discover all they have done is signed a credit agreement as director on behalf of the company.

When a company enters an insolvency event, whether that is a restructuring procedure or liquidation, a company creditor who holds an enforceable personal guarantee may ignore the insolvency process and pursue the guarantor.  This could result in the personal insolvency of the guarantor, which in turn, has an adverse impact on the company where a restructure or turnaround scenario is intended.  In a recent instruction, 80% of the company liability was subject to personal guarantees, resulting in the director having to consider his personal position in addition to the possible restructuring of the company.

Sometimes personal guarantees are a requirement for company borrowings or certain supplies contracts.  Every director should be afforded the right to obtain independent legal advice before signing a personal guarantee and should take that advice.  If possible, you should also ensure there is a cap on any potential exposure you could face.  You may even consider insurance in case the guarantee crystallises.

Apart from the obvious financial burden on a guarantor, personal guarantees may lead to directors acting in breach of their duties.  As a company begins to struggle, it will be a natural instinct to pay that creditor in preference to others or, in some cases, avoid the guarantee liability from crystallising by continuing to trade when, perhaps, you should have ceased trading.  This self-protection mindset may conflict with your duties under the Companies Act and expose a director to potential compensatory awards for malpractice.

At PBC we always consider “The person behind the limited company” and will discuss options where a personal guarantee could have an impact on the way forward.  In our opinion, unless the guarantee can be managed, you have a director whose train of thought is not necessarily focussed on their statutory duties.

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Debt Awareness Week

This week is debt awareness week, and it is reported that a third of all businesses are experiencing debt issues which will likely increase over the coming months for several reasons, including various tax increases.

Nicole Anderson states “If the above resonates with you or, one of your clients,  it is important advice is sought as soon as possible. At PBC Business Recovery & Insolvency, we do not consider debt as a sign of failure. In fact, it is quite the opposite, we applaud those that give business a go, but bumps in the road are part of life – it is how you get over these bumps which is important”

Should there be a need for advice surrounding your debt problems and options available, please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

THANK YOU

Who doesn’t appreciate a simple thank you message?

Reaching out to Insolvency Practitioners for advice can be daunting. It is not until a person, or a company director takes that leap that they realise we are here to try and help. Below are three emails received in the last week which we really appreciate.

Individual with personal debt problems:

“Morning

I’ve submitted my application for bankruptcy. Whatever happens, just wanted to say ‘thank you’. Will always be thankful and appreciative”

Individual looking to take over the running of a company from the current director and avoid a formal insolvency event:

“Hi

Hope you are well

I just wanted to say thank you so much for meeting with me and the company director to discuss matters. Your time was invaluable to us moving forward with any decisions. THANK YOU!”

The closing process made clear and easy for a shareholder to understand:

“I attach the signed consent to early conclusion as requested.

Thank you to all of you, especially Gary, Marli and Nicole, for dealing with the liquidation so smoothly.”

If you need advice, don’t leave it too late to speak to us.  We are all very nice, honest!

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Members’ Voluntary Liquidations – 7 Week Countdown!

Given the recent changes on the rate of CGT that applies to Business Asset Disposal Relief on the lifetime allowance of £1Million, the clock is ticking to benefit from the current rate of 10% until 5 April 2025 on capital distributions. From this date it will rise to 14% and then 18% in  April 2026

The above could be a significant tax saving for you or your clients and, if this is being considered, the time to start acting and planning is now.

Should you wish to discuss a Members’ Voluntary Liquidation further then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk.